Mehdi Boudoukhane
on
February 29, 2024
11
 min read

Deconstructing PLG

The tech industry is obsessed with acronyms: AI, Web3, PLG, SaaS, you name it. But they serve venture capitalists more than they serve founders – the only thing they aid founders with is fundraising.

The main goal of those acronyms is to put startups in glorified categories: "We're a [insert acronym] company" often means "we're a modern company, unlike all the other companies which are from the Stone Age."

Not only is it bullshit, but I also believe that it misguides founders. Let's deep dive into PLG to illustrate the point.

PLG is an acronym for Product-Led Growth. We can ignore the word "Growth" because Startup = Growth (everything else we associate with startups follows from growth). So what's left in the concept is "Product-Led."

But what the hell does it mean to be "Product-Led"? Well, given there's nothing else than product and sales in startups, many founders draw the conclusion that it means the opposite of being "Sales-Led". And given the glorified status of PLG, they end up thinking that building products is more virtuous than selling them.

Unfortunately, it's not helpful. Founders now have an excuse to stay in their comfort zone. "We're product-led" they say, "great products sell themselves, right?" And so they keep building and trying to solve every problem with more product. They demonize outbound. They run away from sales. And doing so they run away from product-market fit...

My take is that we should stop trying to be PLG. Let's take PLG for what it is: a go-to-market motion. There’s no such thing as a "PLG company" ; there are only "PLG strategies". Hence we’ll deconstruct PLG as a set of strategies, not as an identity.

First, let’s note that there’s more to PLG than “self-serve” and “freemium”, which are nothing more than two tactics, among many others. Instead, we can break down PLG strategies into three buckets: 1/ Retention, 2/ Activation, 3/ Acquisition. In that order.

Retention comes first – great retention proves you're building something valuable. Then comes activation – great activation shows you’re able to guide customers towards value. Finally, it’s key to figure out acquisition, which allows you to repeatably bring new customers to the top of your funnel. Note that it’s key to work on acquisition from the start even if it comes last. There’s indeed no point in doing customer retention if you don’t have any customer.

Let’s dive into PLG strategies in the context of retention, activation, and then acquisition 👇

Product-led Retention

Retention is a measure of the people who tried your product and liked it enough to return. Great retention is the scalable way to grow a product. If retention is weak, few users will stay long-term.

There are three ways that startups can integrate product-led retention into their product:

1/ Obsess on improving user experience constantly. Focus on building a product that is both valuable and sticky, ideally with habit loops. Every week, the product has to be better than the week before. Every week, customers must have a reason to use the product and benefit from it. If the product delivers on its purpose and creates value for users, customers will be likely to continue using it.

2/ Set up a feedback system that lets you close the feedback loop with customers at each release. Feedback helps with retention by creating a sense of value and trust between the product and its users. When users see their feedback being implemented, they feel acknowledged and are less likely to churn. A strong feedback system can also prevent users from switching to competitors by ensuring they are aware of the improvements made based on their input.

3/ Enhance your product with network effects. As more users join and contribute, the value and utility of the product increase for everyone. This increases the stickiness of the product, encouraging users to continue using it and reducing the likelihood of churn. The cross-side network effect is the most powerful one as it leads to natural expansion across distinct groups. Carta and Figma are both great examples of cross-side network effects at their finest:

When Carta signs a startup customer, that customer brings over their pool of shareholders. Improved visibility of shareholders’ holdings is certainly useful for them, but it is even more useful if they can view all of their holdings (across multiple startups) in the same interface. So these shareholders are organically incentivized to bring other startups to Carta who then bring over their remaining pool of shareholders. This is a cross-side network effect because the product becomes more useful to one side of the network as the other side scales.

Carta's cross-side network effect (Source: Breadcrumb.vc)

By bringing both designers and non-designers alike into Figma, they create a cross-side network effect too. Designers who use Figma share their designs with engineers and PMs, introducing them to Figma. As these non-designers learn to appreciate Figma, they then evangelize it to other teams of designers they work with on different projects. This helps Figma expand throughout entire organizations.

Source: Why Figma wins by Kwokchain

I started with product-led retention on purpose because it often doesn’t get talked about as much as product-led activation or product-led acquisition. Yet, retention is the area in which product-led strategies are the most impactful. The alternative is sales-led retention, which basically means throwing customer success and sales at renewals – I don’t recommend anyone to focus their retention efforts there.

Here are three great resources on how to leverage product-led tactics to increase retention:

Product-led Activation

Activation is defined as the minimum number of actions a new user has to complete to reduce the chance of churn. It’s the moment when your product delivers on the promised value. Or the moment a user experiences the “aha moment”.

Product-led activation is the hottest PLG topic – to a point people often use the PLG term to refer to “self-serve” (which is part of product-led activation).

There are three ways that startups can integrate product-led activation into their product:

1/ Add a self-serve flow.

2/ Have a free option (freemium or free trial).

3/ Have a transparent (public) pricing.

What’s the alternative to product-led activation? It can be full sales-led activation, which means:

- having a mandatory demo or onboarding call (no self-serve)

- buying before using (no free option)

- getting personalized pricing based on context (no public pricing)

But the key insight here is that you can be hybrid. Your activation doesn’t have to be fully product-led or fully sales-led. For example, our current activation setup at Cycle is as follows:

- book an onboarding call (sales-led, no self-serve)

- unlock free trial during onboarding call (product-led, free option)

- get custom pricing during onboarding call (sales-led, no public pricing)

Many founders want to have a self-serve flow for the sake of “being PLG”. But they should do what works for their business, not what sounds like the right way to “be a PLG company”. I fell into this trap myself. It took me some time to learn and accept that product-led activation was not the right motion for Cycle. Looking back, it makes no sense for Cycle as it is today to try getting users activated through self-serve access. There are three reasons behind this:

1/ It's a product that has a long time to value. We haven't nailed a use case yet where the aha moment happens in the first 5 minutes.

2/ It's a very horizontal product that requires an organizational-level setup. The default workspace setup needs to be tweaked to fit the way a company wants to operate.

3/ We rely on external integrations as feedback sources. Feedback is always gathered through company channels, and folks who sign up don't always have the required permissions to connect new tools to their feedback sources like Slack.

I talked about it with Anna Nadeina on her "SaaS Unbound" podcast. You can find the full episode on Youtube and Spotify.

I’m not the only one. Bobby Pinero (founder at Equals) wrote a great piece about the fallacy of freemium in SaaS – you should definitely have a read!

It’s a counter-intuitive thought but not all friction is bad. As Bobby writes in his blog post, making people invest time, commit to a trial, and put skin in the game can help you build a more engaged user base. The friction weeds out the people who aren’t serious and creates a sense of urgency. It also forces you to focus on the customers and users that really matter.

Ed Sim puts it this way: easy onboarding low friction = easy off-boarding, low friction 😅

Here are three great resources on how to leverage product-led tactics to increase activation:

Product-led Acquisition

Acquisition is the process of attracting new customers. It usually involves marketing campaigns, lead generation, and sales efforts. But that’s not all 👀 The best kind of acquisition must be designed into the product’s feature set, which means the product has to power its own virality.

Product-led acquisition means your users naturally invite other users while using your product. It’s the one acquisition channel that has compounding effects: new users invite more users who invite more users. It’s… viral.

There are three ways that startups can integrate product-led acquisition into their product:

1/ Encourage users to invite other users, naturally. When designing your product, ask if it is used to facilitate important conversations. If so, get as many of your users as possible to use that feature as much as you can. Think about Slack or Zoom. When you join Slack, you naturally invite your teammates so you can talk with them more easily. By doing so, you’re growing Slack’s user base for them.

2/ Make the use of your product visible to people around your users. It’s the good old “powered by X” – think about Calendly or Typeform. Each time someone sends an invite via Calendly, they are also automatically promoting the product and starting a viral loop. The invite recipient experiences the product first hand and can immediately see that it can solve their pain around scheduling meetings with other people. The “powered by Calendly” helps them sign up and start using the product to book their own meetings, perpetuating the viral loop of value.

3/ Encourage users to make shareable content. Ask yourself: do users use my app to make content? Is it content that others would want to see? If so, create public user profiles and allow visitors to search through all the content. Think about how Miro and Notion crowdsource expansion of templates and use cases to their users. Miroverse isn't just a library: community members upload templates for business models, product roadmaps, user story mapping – the list is endless.

The alternatives to product-led acquisition are sales-led (aka outbound) and marketing-led (aka inbound). Product founders often pride themselves on “not being sales-led”, which basically means they focus on inbound marketing as opposed to outbound sales. But by no means it implies they’re product-led. True product-led acquisition means there’s virality built into the product. I wish founders would talk less about “not doing outbound sales” and more about “integrating product-led acquisition” 😊

Here are two great resources on how to leverage product-led tactics to increase activation:

Recap

I've been critical of the PLG (Product-Led Growth) hype, cause I think it misleads founders. The focus on product over sales can deter startups from essential customer interactions and outbound efforts. PLG pushed some of us to focus too much on product development and not enough on market engagement.

It took me a while to truly internalize that “Product-Market fit” is as much about “Market” as it is about “Product.” Brian Balfour is right: we should call it “Market-Product fit” instead. That way, we product founders can stop trying to solve every problem with more product and start iterating on GTM earlier in the journey 🙂

When you have a hammer everything looks like nail. Many founders’ hammer is the ability to ship products. Unfortunately, it’s never a new feature that saves us.

There are no companies out there that are 100% product-led across retention, activation, and acquisition. Most companies still rely on marketing to drive users into their product and have a sales-led activation motion in place on top of self-serve. For example, Cycle is product-led for retention, hybrid (product-led and sales-led) for activation, and hybrid (marketing-led and sales-led) for acquisition. You can acquire customers marketing-led, activate them sales-led, and retain them product-led.

Also, you can adopt different strategies for different segments or plans. For example, you can have a self-serve flow for SMBs but a sales-led activation motion for Enterprise. There’s no one-size-fits-all.

On a final note, I feel like we should stop thinking that product-led means not doing sales. Even the most product-led companies have huge sales teams. It doesn’t get more product-led than Slack, Notion & Figma, right? Still, if you open their respective LinekdIn pages and search “Sales” within their employees, you’ll find 800+ sales folks at Slack, 200+ at Notion, and 900+ at Figma. It’s respectively 23%, 7%, and 12% of their employees 🤯

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